PMI is tax-deductible ..... for now ......

A $40 billion tax bill signed in December introduced a long awaited tax break for homeowners - tax-deductibility of private mortgage insurance, also known as PMI. This deduction is only available to homeowners with adjusted gross income less than $110,000 ($55,000 for individuals) and who itemize their deductions. The new PMI deduction will only apply to mortgage insurance contracts issued in 2007. Congress is supposed to evaluate the law at the end of the year for a possible extension.

Homebuyers may no longer have to opt for the popular 80/20 or 80/10 loans because PMI is now tax deductible. This tax deductibility makes loans with PMI cheaper than the 80/20 or 80/10 alternatives. Homeowners with PMI will now be able to deduct it from their incomes and pay less in taxes each year. It will be tough to justify going for a 80/10 or 80/20 loan if this law is made permanent. It is best to consult a good tax advisor to determine if a PMI loan is good for you.